Sugar mills in Maharashtra on Thursday claimed to have received an assurance from Union finance minister Arun Jaitley that they will not receive any further notices from income-tax department for the 2014-15 season. Having failed to make fair and remunerative price (FRP) payment for the current season, the mills in the state had taken up the issue with the Centre, farmer leaders said.

Jaitley is reported to have given a verbal assurance to a delegation led by Nationalist Congress Party chief Sharad Pawar and representatives of the Maharashtra State Cooperative Sugar Factories Federation (MSCSFF) and farmer organisations that no coercive action would be taken against the mills by the IT department for the 2014-15 season.

He also assured them that changes suggested to the Amendment to the Income-Tax Act Section 36(1) would be taken up during the Monsoon Session in June.
The delegation, in its representation to the FM, suggested that the “any expenditure toward purchase of sugarcane by sugar factories for their business may be deemed as business expenditure”. This means that income tax will not accrue on cane payment, said millers. According to Vijaysinh Mohite Patil, chairman of the federation, Jaitley gave them a verbal assurance that the changes would be made during the Monsoon session and, till then, no new notices would be issued to factories that had made cane payments higher than the FRP fixed by the Centre.

Last week, the Centre had indicated that taxable income of cooperative sugar mills in Maharashtra will be computed after allowing deduction for their extra payment (over and above the fair and remunerative price fixed by the Centre) to farmers.

While the entire cane price payment in states like Uttar Pradesh was calculated as mills’ expenditure by income-tax authorities, in case of Maharashtra, only the first instalment of payment to farmers was recognised as expenditure.

This had resulted in higher tax burden for Maharashtra cooperatives. Millers and farmer organisation leaders, however, are of the view that since this year no FRP has been paid, there is no question of excess payment to be taxed. “Any amount paid over and above FRP is to be taxed as per the interpretation of the IT department and since millers have not paid FRP, there is no issue of paying IT,” said Raju Shetti, leader of the Swabhimani Shetkari Sanghatana.

The income-tax department is of the view that the difference between the higher rate offered by sugar factories and the FRP is considered as their profit and, hence, the amount is taxable. Last year, the I-T department had decided not to take coercive action against mills after a delegation from the federation had met the IT commissioner.
A separate delegation had also met the CBDT chairman. Meanwhile, a review petition filed by a few cooperative sugar factories in 2012 for tax dues of Rs 5,658 crore between 1992-93 and 2009-10 is expected to come up for hearing soon in the Supreme Court. ”The payment to cane growers was part of their price of raw material and, therefore, a business expenditure. It is not a distribution of profit as argued by the income-tax department.

Before the introduction of the FRP regime, the cane price in Maharashtra was fixed by a ministers’ committee, chaired by the chief minister. It was always higher than the statutory minimum price (SMP). After the principle was fixed, the office of the commissioner of sugar issues the final cane price for each mill. Factories had to abide by it,” said Shetti.